Navigant Research Blog

Transactive Future of 2030

Stuart Ravens — May 2, 2017

The power industry is just a couple of years into the most disruptive decade in its history. Industry transformation is a topic Navigant Research returns to on a regular basis in blogs. We often discuss the current issues regarding a particular technology, but we also discuss what the industry will look like at the end of this transformation.

The recently published report Defining the Digital Future of Utilities takes a look into the future and discusses how the utility industry might operate under an aggressive Energy Cloud scenario in 2030. In that scenario, there are ubiquitous distributed energy resources (DER)—in particular, solar PV, electricity storage, and EVs. In addition, residential prosumers are able to sell their excess generation on an open platform at market prices.

Transactive Energy Is Customer Centric

A fully transactive energy system could not look more different compared to the utility business model of just a few years ago. The biggest difference is that the balance of power in the energy value chain shifts to the point of consumption. By 2030, customers will sit at the heart of the electricity value chain. The old supply model is likely to be replaced by a combination of services developed to aid self-consumption and maximize returns on DER investments. While grid-sourced electricity supply is still required, customers’ electricity requirements are mostly met via their own PV and storage. Demand for grid-sourced power is significantly reduced (though it still increases dramatically when solar production stops in evenings).

Today’s supply-based business model is significantly disrupted: with every PV installation, the need for grid-sourced power diminishes. And when prosumers can sell their self-generated power onto open markets, they will compete against large-scale generators. Not every customer will want every kind of technology, service, or tariff. Consequently, the 2030 business model will be based on service offerings that meet each customer’s specific needs.

New competitive energy service providers will compete for customers with transactive energy services that optimize a customer’s returns from their DER investments. There will be significant areas for differentiation and a variety of service offerings. Many of these will be offered in regions where incumbent utilities currently enjoy the protection from a monopoly market. Only a small proportion of potential revenue will come from grid-sourced power supply; all the rest is up for grabs.

Adaptation Grows Ever More Crucial for Utilities

Incumbent utilities really are facing an adapt-or-die decision. Whoever owns the customer relationship will lay claim to the majority of value on offer. Some utilities are already investigating new service-based business models and trialing transactive energy platforms, although many are not. Those incumbents that resist the current transformation or complacently believe it will not affect their current business models could be in for a shock. Falling solar and storage prices strengthen the economic case for residential DER; the ability to sell electricity at market prices could replace existing feed-in tariffs. These are compelling arguments for transactive energy. A refusal to react to the requirements of the 21st century energy industry will see at least some utilities vacillate their way into extinction.